9/23/2016 Mortgage Bankers Association
Fraud Trends and the GSE’s
September 29, 2016
Moderator: Matt Jones, Regulatory Assistant, Mortgage Bankers Association Speakers: Robert N. Hagberg, Director – Enterprise Fraud Risk, Freddie Mac Jennifer Horne, Vice President, Anti-Fraud and Anti-Money Laundering, Fannie Mae Thomas C. Neighbors, Assistant Special Agent in Charge, HUD-OIG Joint Civil Fraud Division
Fraud Trends and the GSE’s September 29, 2016
Jen Horne Vice President - Anti-Fraud, AML Fannie Mae
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Fannie Mae Tip Volume
3000
2500
2000
1500
1000
500
0
Top 10 Tip Sources: Jan 2015 – Dec 2015
600
500
400
300
200
100
0 LQC FHFA LEGAL CPM- REO CONSUMER OTHER PARTIES OTHER LENDER PARTNER RESOURCE CENTER RESOURCE LAW ENFORCEMENT LAW REAL ESTATE AGENT
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Total Tip Breakdown: 2007 - 2015 (+ 2016 Projected)
3500
3000
2500
2000
1500
1000
500
0
ORIGINATIONS SERVICING REO
Mortgage Fraud Tip Distribution
2014 2015
20% 29% 33% 29%
51% 38%
Origination REO Servicing Origination REO Servicing
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Mortgage Fraud Tips Escalated to Open Cases
2014 2015
23% 26% 33% 44%
44% 30%
Origination REO Servicing Origination REO Servicing
Origination Tip Volume
180
160
140
120
100
80 Lender Tips Origination Tips 60
40
20
0
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Combined: Top 10 Fraud Characteristics: Jan 2015 -Dec 2015
Foreclosure Rescue
REO Flips
Forgery
Identity Misrepresentation
Origination Title
Property Flips
Non arms-length Servicing Title Transfer/Deed Fraud Appraisal Fraud
Straw Buyer
Thank-you!
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Freddie Mac Fraud Update September 29, 2016
Presented by Your Logo here Robb Hagberg Director – Enterprise Fraud Risk Freddie Mac
Agenda
• Environmental Factors • Trends • Resources
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Factors Affecting Fraud State
Expansion of Credit • Credit Policy Changes • Risk Tolerances
Counterparties • First-time Homebuyers • Players in the industry
Environment • Purchase Market vs. Refinance Market • Property Value Recovery
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Investment Income Misrepresentation Purchase as Refinance Appraisal Independence/Competency Mass Loan Level Misrep/Affinity-Based Schemes
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Investment Income Misrepresentation
How it works: • Borrower qualifies for investment purchase using projected cashflow reflected on form 998 • Borrower does not qualify without the rental income • Borrower makes significant down payment from substantial bank account (at least 6 figures) • Borrower moves into property at closing in lieu of renting • Note : Also been noted in industry as “reverse occupancy”
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Investment Income Scheme – Document Review
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Investment Income Scheme - Investigation
At least 99 investment purchases originated by broker Borrowers have been shown to be using property as primary residence in at least 1/3 of cases Borrower interviews indicate: • Borrowers intended to purchase primary residence • Borrowers were not intending to rent property/entire property • Without rental income, borrower ratios move into unacceptable range (>100%) • Source of funds is a mix of gift funds and loans from overseas (AML risk?) These cases have been noted across the country
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Investment Income Scheme – Red Flags
Red Flags Borrowers are living with family/friends rent-free purchasing rental property Borrower has no previous landlord experience Bank statement balances are not commensurate to borrower incomes Bank statements show no deposit/withdrawal activity
Although these loans may meet the technical aspects of our Guide, facts in documents in aggregate may not make sense.
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Investment Property Scheme
How it works: • Borrowers acquire property with hard money loan • Borrowers quickly close refinance of hard money loan • Refinance is based on appraised value vs. acquisition price • Although these loans are originated as a refinance, investigation shows these loans are actually a purchase transaction
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Investment Property Scheme - Appraisal
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Investment Property Scheme - Appraisal
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Investment Property Scheme - Investigation
Properties were offered to borrowers as no money down purchases Borrowers were promised a discount when purchased in bulk Borrowers were promised property management services Timing and staging would indicate these to be purchase as refinance Review of the appraisal shows value unsupported based on a lack of exposure to the open market, lack of rationale offered for value increases and apparent failure by lender to ensure appraisal independence More than 100 investment mortgages originated by this loan officer
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Investment Property Schemes – Red Flags
Red Flags: • Borrowers may be out of state • Borrowers may be renters/first time home buyers • Refinance of investment property • Refinances appear to repay hard money loans • Properties are flip/rehabs where increases in value between transactions may not be supported • No history of subject property being listed on the MLS • Borrowers may be purchasing/financing in bulk
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Property Valuation
Obtaining reliable collateral value has become a greater challenge Independence Competency/sloppy work Is it fraud?
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Appraisal Independence
Affiliated AMCs Limited panels Loan officer influence on assignment
Technical compliance with AIR, Dodd-Frank, etc. does not guarantee compliance with intent of guidance.
Incompetence vs. Fraud
House #4231 – appraised December 3
House #17702 – appraised Dec 24
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Incompetence vs. Fraud
House #17702 – Comp 7 on appraisal 1 and subject address on appraisal 2
House #17725 – Comp 7 on appraisal 2
Incompetence vs. Fraud
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SF Origination Fraud – Appraisal/Value Issues
Mass Loan Level Misrepresentation
Same broker, multiple loans Employers are fiction Income documents are fabricated Prior years’ taxes re-verify as accurate VOEs used to support are false – increase rationales are false Borrower contributions are predicated on false gift letters
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Affinity Based Cases
Geographic Concentration Borrowers All in Similar Lines of Work Gift letters Rental Leases Same Broker(s) on All Loans Potential Ties to Other Fraud Scams
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Resources
www.freddiemac.com/singlefamily/preventfraud/resources.html • Fraud Mitigation Best Practices • Mortgage Screening Process • Mortgage Fraud Prevention Toolkit • mortgage fraud-related articles www.loanscamalert.org www.fincen.gov/news_room/rp/mortagefraud_suspectedMorgageFraud.html www.stopfraud.gov www.fbi.gov/about-us/investigate/white_collar/mortgage-fraud/mortgage_fraud
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Questions?
Robb Hagberg (703) 903-3785 [email protected]
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Fraud Trends and the GSE’s September 29, 2016
Tom Neighbors Assistant Special Agent in Charge HUD Office of Inspector General
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About HUD OIG We accomplish our mission by: • Conducting independent and objective audits, investigations, and other activities relevant to the HUD mission. • Keeping the Secretary, Congress and the American public fully and currently informed. (Semiannual Report to Congress) • Working collaboratively with HUD staff and program participants to ensure success of HUD program goals.
HUD OIG Offices you may encounter: • Office of Investigations • Office of Audit • Office of Inspections and Evaluations
HUD’s Impact in the Mortgage Market Single Family Multifamily Mortgage Insurance through the FHA • 203(b) Single Family mortgage Mortgage Insurance through the FHA insurance • Mortgage insurance for low income • 234(c) Condo mortgage insurance housing projects • 203(k) Rehab loan mortgage • Mortgage insurance for elderly insurance housing projects • 255 Home Equity Conversion • Nursing Homes / Hospitals through Mortgages the Office of Healthcare Programs
Other Loan Guarantee Programs • Section 184 Indian Home Loan Guarantee • Section 502 Rural Housing Loans
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Differences Between GNMA and the GSEs Ginnie Mae Fannie Mae and Freddie Mac Wholly‐Owned Government Corporation Shareholder‐Owned, Publicly‐Traded Explicit Guaranty to Investors Implicit Guaranty to Lenders and Investors Government Insured Loans (FHA, VA, PIH, RD) Conventional Loans Trade Higher, Low Interest Rate to Borrowers MBS Only MBS and Whole Loan Portfolio Issuer/Servicer Risk Borrower Credit Risk, Interest Rate Risk & Servicer Risk Total Outstanding Portfolio Total Outstanding Portfolio Ginnie Mae –Over $1.7 Trillion Fannie Mae – $3.2 trillion Freddie Mac – $2.0 trillion Approximately 127 Employees Greater than 5,000 employees each
Ginnie Mae’s Impact in the Secondary Market
In Fiscal Year 2015:
• 39% market share of the secondary mortgage market • Virtually all of the government mortgage market • Issued more than $432 billion in new RMBS • Pass through to investors exceeded $405 billion
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Fraud Trends in HUD’s Primary Market Space
Fraud in Multi-Family market is still high: • 28% of FHA mortgage fraud investigations initiated in FY2015 involved MF properties (up from 23% in FY 2014) • 40% of MF-related criminal investigations initiated in FY 2015 involved embezzling, bribery or equity skimming by MF property owners/managers
Fraud in Single Family market is in the origination phase: • Appraisal frauds still prevalent, and becoming sophisticated • Rising home prices are reducing fraud-related losses and masking the problem (again) • Home Equity Conversion Mortgages (“Reverse Mortgages”) continue to be an attractive vehicle for mortgage fraud
Fraud Trends in HUD’s Primary Market Space (continued)
The old tricks are back in style…. • False employment and earnings documents • Reports of identity theft continue to rise
And some new tricks as well… • Misuse of appraiser credentials / appraiser identity theft • Related-party AMCs • Home Equity Conversion Mortgages used in builder bailout schemes • Reverse Mortgage originations being “churned” and refinanced with little or no realized benefit to borrower
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Fraud Trends in HUD’s Secondary Market Space
HUD OIG continues to identify servicing-related schemes
As discussed at the MBA Risk Management, QA & Fraud Prevention Forum in 2015, HUD OIG will continue to focus on GNMA servicing schemes and small issuer/servicers
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Fraud Trends in HUD’s Secondary Market Space (continued) Prepayment speeds on loans in GNMA pools 13% higher than the rest of the market
At the same time, issuance of GNMAs at an all-time high, surpassing FHLMC in FY 2015 Profitability of Ginnie Mae RMBS issuance may be driving fraudulent activity. • Improper servicing to remove loans from pools • HECM refinance activity
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Fraud Trends in HUD’s Secondary Market Space (continued)
High rate of GNMA prepayments presents risk of undermining consumer confidence.
HUD OIG will continue to investigate the causal factors to identify criminal activity.
Questions?
To report fraud, contact the HUD OIG Hotline at 1(800) 347-3735 Or [email protected]
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